Transcript SUPPLY
SUPPLY When we talk about supply we are referring to the activities of the producer! Supply: amount producers are willing and able to produce at each and every price (the entire curve) Quantity supplied: amount producers are willing and able to produce at a certain price (a point on the curve) THE LAW OF SUPPLY • The higher the price of a good, the more producers will supply (the higher the quantity supplied) and vice versa * Thus we know that a supply curve will slope upward (opposite a demand curve) SUPPLY GRAPHS (AND SCHEDULES) • Like demand graphs, supply graphs show the relationship between two variables: price and quantity (supplied) • All other factors that could change production are assumed to remain same • A rise or fall in price will cause quantity supplied to change… not supply! SUPPLY GRAPHS (AND SCHEDULES) • If price changes, quantity supplied changes and we move along the curve • If a factor other than price changes, supply changes and we move the entire curve CHANGES IN SUPPLY #1 Cost of resources • A rise in the cost of resources (land, labor, capital) to make a good or service will cause a decrease in supply and shift the curve to the left • A decrease in the cost of resources will cause an increase in supply and shift the curve to the right CHANGES IN SUPPLY #2 Technology • New technology can lower production costs and cause an increase in supply; shift of the curve to the right CHANGES IN SUPPLY #3 Government Action: Subsidies, Taxes, and Regulations Subsidies: government payment that supports a business • If the government provides a subsidy, it usually causes an increase in supply CHANGES IN SUPPLY #3 Government Action: Subsidies, Taxes, and Regulations • Increased (* excise)taxes can cause a decrease in supply * Tax on the production/sale of a good (cigarettes, gasoline, etc.) • Increased regulation can cause a decrease in supply CHANGES IN SUPPLY #4 Natural Disaster/Other Event • A hurricane, crop freeze, labor strike or some other type of event can cause a decrease in supply CHANGES IN SUPPLY * Since the U.S. relies heavily on imports, our supply is often affected by events in other countries ACTIVITY 6: SHIFTS IN SUPPLY Supply of Foreign and Domestic Cars in U.S. (start at curve C) * one no change and factors can be used twice 1. Ford and GM Announce Wage Decreases Factor ________ Supply _______Curve _____ 2. New Robot Increases Efficiency 3. Japanese Auto Strike Began at Midnight (Tokyo time) 4. Auto Prices Rise Due To Inflation 5. U.S. Increases Auto Efficiency Requirements to 35/mpg For All New Models 6. Glitch in Software Forces Robot Recall 7. Young Design Engineers Commanding Ever-Increasing Salaries ACTIVITY 6: SHIFTS IN SUPPLY (start at C again) * There are two ‘no supply factors, no changes in supply’, but not because of a change in price…see if you can figure them out! 8. Government Decreases Taxes on Factories 9. Government Reduces Individual Income Taxes to Spur Economy 10. Government Subsidizes Car Industry To Stimulate Economy 11. Cost of Steel Rises 12. Commie’s Take Over Factories In Mexico; Transfer Resources to Military Production 13. Buyers Reject New Models 14. Flood Cleanup Finished; Factories Up and Running Again ELASTICITY AND SUPPLY • Elasticity of supply: measurement of how producers respond to a price change • If price changes and quantity supplied changes dramatically supply is elastic • If price changes and quantity supplied changes only a small amount supply is inelastic • The main factor is time: initially supply will be inelastic, but eventually becomes elastic